Radiation levels have peaked at a level which can kill in four hours.
Japan's hopes of fixing its nuclear leaks at Fukushima rest on an ambitious plan to build a 3.2km frozen underground wall.
The Government has been under pressure to intervene to bring the crisis under control in the run-up to the International Olympics Committee meeting this weekend that will choose the host city for the 2020 games from a shortlist of Tokyo, Istanbul and Madrid.
Tokyo's decision comes two weeks after hundreds of tonnes of contaminated water leaked from the site of the nuclear reactor, destroyed more than two years ago in Japan's earthquake and tsunami, the worst atomic disaster since Chernobyl. Radiation levels in storage tanks at the site have been spiking at 1800 millisieverts per hour _ enough to kill an exposed person in four hours.
Shinzo Abe, the Japanese Prime Minister, announced proposals costing 47 billion ($600 million) to create a wall of frozen earth stretching 30m deep to stop groundwater seeping into the site, as well as the installation of water treatment units to reduce radiation in water stored at the plant.
"The world is watching to see if we can carry out the decommission of the Fukushima nuclear power plant, including addressing the contaminated water issues," said Abe. "The Government will step forward and take charge."
The Government is wary of taking full responsibility for a costly and technically challenging recovery operation for the entire site but the decision to intervene was forced on the politicians as the scale of the clean-up problems escalates.
Tokyo Electric Power (Tepco), operators of the plant and Japan's biggest utility company, remains responsible for storing the contaminated water and the greater challenge of removing the spent fuel rods. The plant is in a state of "cold shutdown" as experts struggle to formulate credible plans for a decades-long clean-up operation in the aftermath of a triple reactor meltdown in 2011. Tepco is responsible for the containment of enough contaminated water to fill more than 130 Olympic-sized swimming pools, mostly in hastily built tanks. More than 400 tonnes of water is used every day to cool the damaged reactors, while a similar volume of groundwater seeps into the site.
Atsunao Marui, an expert at the National Institute of Advanced Industrial Science and Technology, warned that the Government was addressing only a small part of the problems at the site.
"We still need a few layers of safety backups in case it fails," he said. "Plus the frozen wall won't be ready for another two years, which means contaminated water would continue to leak out."
The Government decontamination proposal is also open to doubt. The US-developed Advanced Liquid Processing System is designed to remove all atomic particles from water except tritium, which is relatively benign to humans. But the system has encountered problems in trials. Japan imposed a 32km exclusion zone around the Fukushima plant in the aftermath of the earthquake, leading to the evacuation of 160,000 people. Few have been able to return and the decommissioning process is expected to take 40 years.
* Creating the frozen wall involves constructing an electrical system of pipes carrying a coolant as cold as -40C to a depth of 30m.
* While the technology to create the underground barrier is regularly used during the construction of subway systems, it has never been proposed as a permanent installation.
* A smaller scale ice wall was used to isolate radioactive waste at the former site of the Oak Ridge National Laboratory in Tennessee, the United States, but only for six years. If all goes to plan the Japanese wall will be finished by early 2015.